Parent gets 30 days to file subsidiaries' LIFO elections

Plain-English summary

A parent company transferred inventory to three newly formed subsidiaries in a represented § 351 restructuring. The subsidiaries consistently used the last-in, first-out inventory method, but the parent's accounting firm did not advise it to attach the required Forms 970 to the consolidated return. A later internal review uncovered the omission, and the parent promptly requested relief before the IRS discovered it. The IRS found that the regulatory-election relief requirements were satisfied and granted 30 days to file the missing forms. It did not rule on whether the subsidiaries' LIFO accounting or the restructuring itself was otherwise correct.

Ruling snapshot

• Question: Could the parent receive extra time to file Forms 970 electing LIFO for three subsidiaries after its accounting adviser missed the filings?
• Outcome: Approved, with 30 days from the ruling date to file the forms
• Key authorities: IRC § 472; Treas. Reg. §§ 1.472-3 and 301.9100-1 through -3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201448017 Third Party Communication: None
Release Date: 11/28/2014 Date of Communication: Not Applicable
Index Number: 9100.11-00
Person To Contact:
------------------------------ ---------------, ID No. ----------
Attn: ----------------------------------------------------- Telephone Number/Fax Number:
------ -------------------- --------------------
--------------------------------------------------- Refer Reply To:
---------------------------- CC:ITA:B6
PLR-124204-14
Date:
August 28, 2014

Legend

Parent = -------------------------------- ---------

Taxpayer1 = ---------------------------------
----------------------

Taxpayer2 = --------------------------------------

Taxpayer3 = ----------------------------------------------

Products = ------------------------------------------------------------------------

Date1 = ---------------------------

Year1 = ------

B = -----------------------------

C = -----------------------------

Dear -----------------:
PLR-124204-14 2

This letter is in reply to a private letter ruling request dated June 10, 2014, filed by
Parent on behalf of Taxpayer1, Taxpayer2, and Taxpayer3, requesting an extension of
time under § 301.9100-1 of the Procedure and Administration Regulations to file Forms
970, Application To Use LIFO Inventory Method.

Parent and its wholly owned subsidiaries manufacture, supply, and market Products to
customers throughout the world in the Products industries.

During the fiscal year ending Date1, Parent restructured its consolidated group,
transferring certain assets and liabilities, including inventory, to newly formed, wholly
owned entities including Taxpayer1, Taxpayer2, and Taxpayer3, in a transaction that
Parent represents qualified as a tax-free exchange under § 351 of the Internal Revenue
Code. The inventory transferred had been identified using the last-in, first out (LIFO)
inventory method described in § 472. Taxpayer1, Taxpayer2, and Taxpayer3 have
identified their inventory using the LIFO inventory method upon receipt of their
respective inventory.

Parent was required by § 1.472-3(a) of the Income Tax Regulations to file a Form 970
on behalf of Taxpayer1, Taxpayer2, and Taxpayer3 for the fiscal year ending Date1.
Parent used B, an accounting firm, to review its consolidated tax return as prepared by
Parent for fiscal year ending Date1 and to inform Parent of the need to make any
required elections. B was aware of the fact that Parent used the LIFO inventory method
for Taxpayer1, Taxpayer2, and Taxpayer3. Parent was not informed by B to attach the
required Forms 970 to its tax return.

To perform a routine internal review of Parent’s LIFO calculations, Parent engaged C in
Year1. C requested copies of the Forms 970 filed on behalf of Taxpayer1, Taxpayer2,
and Taxpayer3. When it was determined that the Forms 970 had not been filed, C
advised Parent to file this private letter ruling request. Parent promptly filed this request
on behalf of Taxpayer1, Taxpayer2, and Taxpayer3 for an extension of time to file the
Forms 970.

Parent represents that Taxpayer1, Taxpayer2, and Taxpayer3 have used the LIFO
inventory method described in § 472 for the fiscal year ending Date1 and have used the
LIFO inventory method for all subsequent taxable years. Parent also represents that
the LIFO inventory method was used in the reports for the three entities to
shareholders, partners, or other proprietors, to beneficiaries, and for credit purposes for
the fiscal year ending Date1 and all subsequent fiscal years.

Section 472 provides that a taxpayer may use the LIFO method in inventorying goods
specified in an application to use such method, filed at such time, and in such manner,
as the Secretary may prescribe.
PLR-124204-14 3

Section 1.472-3 provides that the LIFO inventory method may be adopted and used
only if the taxpayer files with its income tax return for the taxable year as of the close of
which the method is first to be used a statement of its election to use such inventory
method. The statement is to be made on Form 970.

Section 301.9100-1(c) provides that the Commissioner has discretion to grant a
reasonable extension of time under the rules set forth in §§ 301.9100-2 and 301.9100-3
to make certain regulatory elections. Section 301.9100-1(b) defines a regulatory
election as an election whose due date is prescribed by a regulation published in the
Federal Register, or a revenue ruling, revenue procedure, notice, or announcement
published in the Internal Revenue Bulletin.

Section 301.9100-2 provides automatic extensions of time for making certain elections.
Section 301.9100-3 provides extensions of time for making elections that do not meet
the requirements of § 301.9100-2.

Requests for relief under § 301.9100-3 will be granted when a taxpayer provides
evidence to establish to the satisfaction of the Commissioner (1) that the taxpayer acted
reasonably and in good faith, and (2) that granting relief will not prejudice the interests
of the government. See § 301.9100-3(a).

Section 301.9100-3(b)(1) provides that a taxpayer is deemed to have acted reasonably
and in good faith if the taxpayer: (i) requests relief before the failure to make the
regulatory election is discovered by the Internal Revenue Service; (ii) failed to make the
election because of intervening events beyond the taxpayer’s control; (iii) failed to make
the election because, after exercising reasonable diligence, the taxpayer was unaware
of the necessity for the election; (iv) reasonably relied on the written advice of the
Service; or (v) reasonably relied on a qualified tax professional, including a tax
professional employed by the taxpayer, and the tax professional failed to make, or
advise the taxpayer to make, the election.

Section 301.9100-3(b)(3) provides that a taxpayer is deemed not to have acted
reasonably and in good faith if the taxpayer: (i) seeks to alter a return position for which
an accuracy-related penalty was or could be imposed under § 6662 at the time the
taxpayer requests relief and the new position requires or permits a regulatory election
for which relief is requested; (ii) was informed in all material respects of the required
election and related tax consequences and chose not to file the election; or (iii) uses
hindsight in requesting relief.
PLR-124204-14 4

Section 301.9100-3(c)(1)(i) provides, that the interests of the government are prejudiced
if granting relief would result in the taxpayer having a lower tax liability in the aggregate
for all taxable years affected by the election than the taxpayer would have had if the
election had been timely made (taking into account the time value of money). The
section also provides that, if the tax consequences of more than one taxpayer are
affected by the election, the government’s interests are prejudiced if extending the time
for making the election may result in the affected taxpayers, in the aggregate, having a
lower tax liability than if the election had been timely made.

Further, § 301.9100-3(c)(1)(ii) provides, in part, that the interests of the government are
ordinarily prejudiced if the taxable year in which the regulatory election should have
been made, or any taxable years that would have been affected by the election had it
been timely made, are closed by the period of limitations on assessment under
§ 6501(a) before the taxpayer’s receipt of a ruling granting relief under this section.

The requested election is a regulatory election as defined under § 301.9100-1(b)
because the due date of the election is prescribed in § 1.472-3. Parent’s request is
analyzed under the requirements of § 301.9100-3 because the automatic provisions of
§ 301.9100-2 are not applicable.

On the basis of the facts, representations, and affidavits submitted, we conclude that
the requirements of § 301.9100-3 have been satisfied. Accordingly, we hereby grant an
extension of time for Parent to file the missing Forms 970 on behalf of Taxpayer1,
Taxpayer2, and Taxpayer3. This extension shall be for a period of 30 days from the
date of this ruling. Please attach a copy of this ruling to each Form 970 filed pursuant to
this private letter ruling request.

The ruling contained in this letter is based upon information and representations
submitted by Parent and accompanied by a penalty of perjury statement executed by an
appropriate party. While this office has not verified any of the materials submitted in
support of the request for a ruling, such material is subject to verification on
examination.

Except as expressly provided herein, no opinion is expressed or implied concerning the
tax consequences of any aspect of any transaction or item discussed or referenced in
this letter. Specifically, we express no opinion as to whether Taxpayer1, Taxpayer2, or
Taxpayer3 has correctly used the LIFO inventory method. We also have no opinion as
to the internal restructuring of Parent that occurred in the fiscal year ending Date1.
Further, we have no opinion as to the correctness of the use of the LIFO inventory
method by any entity that obtained inventory in the tax-free exchange that occurred
during the fiscal year ending Date1 other than Taxpayer1, Taxpayer2, and Taxpayer3.
PLR-124204-14 5

This ruling is directed only to Parent, who requested it. Section 6110(k)(3) provides that
it may not be used or cited as precedent.

                                             Sincerely,




                                             CHERYL L. OSEEKEY
                                             Senior Counsel, Branch 6
                                             Office of Associate Chief Counsel
                                             (Income Tax & Accounting)

Enc: copy for section 6110 purposes

cc: